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MakeMyTrip's Quarter Gets Cold Reception

NEW YORK (
TheStreet) -- Shares of
MakeMyTrip Ltd.(MMYT - Get Report) were grounded Monday after the India-based online travel company delivered in-line results in its first quarter as a public company and disclosed a potential tax issue.

On an adjusted basis, excluding certain items, MakeMyTrip said it earned $579,000, or 2 cents a share, in the latest quarter, meeting the average estimate of three analysts polled by
Thomson Reuters. Revenue rose nearly 41% year-over-year to $23.8 million in the September quarter from $17 million last year. Less service costs, revenue totaled $12.9 million for the period, up 42%.

Expenses also expanded across the board, however, with personnel costs rising to $3.4 million from $2.4 million a year ago and other operating expenses such as payment gateway charges, advertising and business promotion expenses and outsourcing fees swelling to $8.7 million in the latest three months, a jump of 43% from last year.

A bigger problem for MakeMyTrip may be the tax issue, which stems from an industry-wide audit initiated by the Indian government for the fiscal year ended in March 2009. The company said Monday it received a notice during the September quarter seeking payment of an undisclosed amount of service taxes, a determination MakeMyTrip said it plans to argue against.

"Based on legal advice received, the company believes that it has a strong case in its favor and is in the process of preparing an appropriate response to the notice issued by the service tax authorities," MakeMyTrip said in its statement. "However, at present no reliable estimate can be made of the amount of the obligation, if any."

That last statement is the most troubling as Wall Street hates uncertainty. MakeMyTrip did offer up what it termed an "optimistic" outlook, saying it expects revenue less service costs of between $58 million and $61 million for fiscal 2011, but that forecast did little to stem the selling in the stock, which based on Friday's close at $38.15, was up more than 150% from its IPO price.